There has been a great deal of attention lately on the ‘new’ Wall Street investment called LIFE SETTLEMENT or VIATICALS. As investments these are not ‘new’ at all, and have been around for quite a while.

How They Work:
Historically, some insurance companies have offered an accelerated death benefits option which allows the insured an opportunity to receive up to 80% of the death benefit at any time within the last year of their projected life. The remaining 20% is then paid to the insured’s estate.

On the other hand, the business of viatical settlements involves the selling of a policy death benefit, at less than face value, by a terminally ill person to a third party. This is accomplished, for a commission, with the assistance of a broker who offers the policies to settlement provider companies for bid, with the highest bidder obtaining the policy for resale to investors. The broker receives a commission based on the sale price.

The theory is investors buy a group of “pooled life insurance policies” that have been sold by the owners of the policies. Investor money buys the policies at a discount, so when the holder of the policy dies, the investors makes a healthy profit when the policy pays off. While returns of 15% to 25% are frequently offered to investors, it’s estimated that up to 50% of the policies being sold to investors are fraudulent. Experts estimate that investors have lost more than $400 million in these types of investments since the industry started in the 1980’s. One corporation alone, charged with 155 felony counts relating to criminal fraud had bad policies with a face value of $12.7 million.

The PITCH to get you to buy:
That your investment will produce a 100% rate of return because you are assigned a policy with a face value of twice your investment which you can claim upon their death;
That you will have the option of reselling your policy once it becomes incontestable (two years after the date the policy is issued) for 70% of the face value; and
That if the policy is contested or canceled by the insurer, the promoters will provide a replacement policy through a “replacement policy trust” managed by them.

They say these are better investments than stocks, mutual funds, annuities, and CD’s because viatical investments have the following attributes:

In addition they say you will be making a “humanitarian investment” because the terminally ill person will be able to use the funds to receive improved health care; pay off debts; take a vacation, reduce family stress, and enhance their quality of life. In exchange for your money you receive a Membership Certificate certifying that you are a member of Viatical Funding LLC.

Sounds good doesn’t it. Here is what they don’t tell you:
After deducting the fees paid to sales agents, viator agents, and other intermediaries from your funds, you find that the ill person will actually be left with very little. In this case only $5,400, which is only 12% of your investment of $45,000, or 6% of the policy’s face value of $90,000.

They fail to disclose to you that the insured was terminally ill prior to being insured, that they concealed this fact on the application, and thus subjected the policy to cancellation by the insurer.

Instead of being designated as the sole beneficiary you may find you share it with creditors and family members, and that the option to resell the ownership interests is not a guaranteed option, but rather an “assurance” that they will “make an effort” to facilitate a resale. In any event, you will not likely receive a promised 70% of the face value but only the amount another investor would be willing to pay, less commissions, which could be much less.

They also fail to mention:
The risk of the insured living much longer than the estimated life expectancy, thereby greatly reducing the annual yield;

The risk of their becoming insolvent and unable to replace a contested or canceled policy;

The risk of the life insurance policy lapsing, or that you will often have to pay the policy premiums for the duration of the policyholder’s life;

The 15% commission the sales agent receives from your investment;

Who is responsible for monitoring the health status and location of the insured, obtaining a death certificate, and making a claim to the insurance company.

Of course in the case of almost every Viatical Investment Fraud, the policies do not exist.

Prior to Madoff and Stanford, the single largest fraudulent investment in the U.S. was Mutual Benefits Corp., who defrauded investors out of $1 billion dollars in Viatical Settlement Policies.

To learn more about all the types of Viatical Insurance Fraud, Google “Viatical Investment Fraud, or go here:

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